As seen on

Currencies

Currencies

The Dent Research team examines the rise (and falls) of the world’s latest currency craze… bitcoin and blockchain.

The cryptocurrency market has taken the world by storm in a relatively short period of time, as certain currencies such as bitcoin and ethereum have boomed.

When bitcoin came out during the financial crisis, most everyone I know hated the government. We hated officials because they didn’t regulate the fraudulent bankers before the meltdown occurred, and because they used our tax dollars to bail the criminals out of their financial mess.

The final insult was that none of them went to jail, and we were stuck with extraordinarily low interest rates for a decade to ensure that the banks would survive.

The cryptocurrency offered an attractive alternative. Use a digital currency controlled and issued by no one that allowed anyone on the planet to examine all exchanges, eliminating fraud.

In addition, the currency would be available anywhere a consumer could connect to the internet, as well as on physical memory devices if desired.

And only a set number of the units would be produced… ever. No more games with monetary policy. No more bad banking decisions. Just simple, straightforward currency.

It sounds so good and it is, but some of its main features turn out to be unfixable bugs. The limited supply and fluctuating price kill the deal.

Because there are so few bitcoin available – and anticipated, with a cap of 21 million units to be issued – the mere fact that more people use the currency makes it less affordable.

The more we buy it, the higher the price. Arguably the value of goods and services remain stable, so this means current holders of bitcoin experience a gain in purchasing power. This motivates people to simply hold the currency, not use it as was intended.

Beyond simply units of exchange, currencies are supposed to function as storehouses of value. That means they remain stable when compared to a basket of goods over time, understanding that individual goods, like oil and wheat, can fluctuate dramatically based on factors such as weather and geopolitics.

If the currency itself becomes the asset, consumers will simply hoard the currency. If they don’t use it for transactions, that limits our investment in other, more productive areas.

Today, people are more interested in holding bitcoin for appreciation than using it to replace their home currency.

If there were any way to assure that bitcoin would continue its upward trajectory, everyone would be a bitcoin investor, not a bitcoin user.

But, as we do this, aren’t we robbing the traditional economy of investment, no longer buying bonds that support cities, or stocks that drive the private sector, or even holding funds in bank accounts that will serve as the basis for a loan for the next borrower?

There could be the flip side.

As we free ourselves of dollars – or yen, euro, or whatever – those currencies will diminish in value, cutting into the purchasing power of everyone left holding the relics, and also eating away at the value of earned income (assuming it’s still paid in national currency).

Suddenly the world becomes separated into the digital haves and the digital have-nots.

This game continues until people like me have bought all they want… and then something really bad happens. Without continued demand, the price drops.
Suddenly this currency-turned-asset becomes a liability.

The problem with currency is that unless it grows in conjunction with an economy, it becomes a force for either inflation or deflation.

If we print a lot of it like, say, most central banks on the planet, we create inflation. Everyone understands that today. But if we don’t print enough, money becomes more dear, driving down prices, and money becomes the asset.

This can be just as devastating as inflation… just ask anyone who lived through the Great Depression.

The ideas behind bitcoin are laudable, is it really the answer to our currency woes? Only time will tell.

For more on the future of bitcoin, cryptocurrencies, the value of the dollar and many other currencies, follow the Dent Research team every day, in Economy & Markets.

Jamie Dimon, JPMorgan CEO, says Bitcoin is a fraud – likening it to the 17th century tulip bubble – that will eventually blow up. He said he’d fire any trader who traded it.
Ron Insana, CNBC contributor, says Bitcoin is...

Did you make $20,000 today? Well, you could have. In fact, you could have made tons more money.
All you had to do was own some bitcoin, the cryptocurrency. As I write, bitcoin is up 47% for the month, jumping...

Managing Editor’s Note: On Tuesday, Harry wrote to you about the bitcoin craze and the recent contact he’s made with cryptocurrency expert Michael Terpin. Michael will be speaking at our fifth annual Irrational Economic Summit in October, in Nashville,...

Bitcoin. Blockchain. Ethereum. Veritaseum. Litecoin. Ripple. ICOs.
It seems like nowadays you can’t listen to or read the news without hearing something about cryptocurrencies. And it looks like investors are going crazy over it.
Ripple has gained 3,000% this year.
More than...

In October 2015 we held our Irrational Economic Summit in Vancouver. The weather was awesome, and the conference went well. Part of the final session was a Q&A with Harry Dent, myself, and Dr. Lacy Hunt.
At one point,...

It’s only June 1, and it feels like the dog days of summer have arrived here in Florida. School is mostly out, humidity’s soaring, and we’ve already seen highs in the 90’s…
Even the markets seem to be treading water...

The U.S. dollar is strong – really strong. It's already become a major headwind for big tech companies that earn a boatload of their profits overseas.
For one, a strong dollar makes U.S. exports more expensive for foreign buyers. It...

Clocks, scales, and meat slicers. IBM sold all kinds of different items when the company started out a century ago. Back then, it looked nothing like the information and consulting company it is today. It didn’t get into the...

I've been shocked over how much QE and stimulus the central banks have signed on for in the last seven years, but they’re finally starting to reach their limit.
The U.S. already did in 2014 when the Fed finally tapered....

Now that it’s time to work that Thanksgiving feast off – how about getting paid for it?
One of the latest innovations is Bitwalking, an app you download on your phone that tracks your mileage and literally pays you for...